A legal challenge by Canadians against government evidence for sanctions against Russia has won a reversal by the Canadian Foreign Ministry. The victory conceded by the ministry in Ottawa last week opens the door to legal challenges to the US Government’s campaign to topple President Vladimir Putin and force regime change in Moscow.

The Canadian Foreign Minister, John Baird, admitted in parliament on September 18 that the government had removed two Russian banks, RosEnergoBank and Expobank, from its sanctions list. “Following receipt of new information and further investigation and analysis, these entities are being removed from the list,” Baird said in reply to a question in the House of Commons from opposition member, Paul Dewar. According to Baird, the banks were “sufficiently divorced” from events in Ukraine to warrant sanctions.
Rosenergobank and Expobank had been sanctioned by Canada on April 28. RosEnergoBank is a closed joint stock company owned by several shareholders, including Gennady Gordon, Lidia Vasilieva, and Konstantin Shvarts. They complained directly to the Canadian Foreign Ministry, without Canadian legal representation.

Expobank, which had been sold by Barclays to Igor Kim in 2011, engaged McCarthy Tetrault, one of Canada’s leading law firms, to prepare its case against the sanctions decision. A Canadian lobbying firm, Ensight Canada, was also hired. According to Ensight, the evidence for the government’s sanctions against Russians involved in the Ukraine conflict did not apply to the bank. A Canadian source close to the case adds: “The evidence points to this being a simple case of mistaken identity. There is another Expobank based in Ukraine that had been involved in siphoning off gas profits and murky deals; the government of Canada almost certainly wanted to sanction that bank, not the Russian Expobank that made the list.”

John Boscariol is the attorney who led the legal challenge. He is an expert on international trade law; in the past he has led challenges to sanctions striking at Canada’s trade, including cases where US sanctions against trading with Cuba have been contradicted by Canadian laws making it an offence to comply with the US sanctions.

At the same time as the Foreign Ministry in Ottawa attacked the two banks, Canadian opposition parliamentarians accused the government of shielding Sergei Chemezov, Igor Sechin and other Russian business interests because of their involvement in Bombardier aircraft and Alberta oil sands projects.

In June the Foreign Ministry in Ottawa refused to defend publicly the reasons it had for sanctioning Expobank and RosEnergoBank. “In order to preserve the integrity of this process, we cannot discuss publicly the specifics of the application of Special Economic Measures Act against particular individuals or entities,” Baird’s (right) spokesman told the Ottawa Citizen.

Baird’s admission in parliament that the Russian bank challenge had succeeded has not been followed by a Foreign Ministry press release. Instead, the ministry has said it is issuing “further economic sanctions and travel bans against four Russian individuals, and economic sanctions against five Russian entities and one financial institution [Sberbank]. Despite the efforts by President Poroshenko to end the violence in Eastern Ukraine, the Putin regime’s military aggression continues. For example, today we are seeing reports that President Putin has ordered a surge of troops in Crimea, and we have seen no evidence of progress on our calls for the Putin regime to end its support to the armed militants fomenting violence.”

The Canadian statute which gives the Russia sanctions their lawfulness is the Special Economic Measures Act of 1992. This says that when economic measures are proposed to be taken against a foreign state, “the Governor in Council is of the opinion that a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis.”

For the Russian sanctions to be lawful in Canada, the Canadian regulations require the Foreign Minister to demonstrate “there are reasonable grounds to believe [the designated person] is (a) a person engaged in activities that directly or indirectly facilitate, support, provide funding for or contribute to a violation or attempted violation of the sovereignty or territorial integrity of Ukraine or that obstruct the work of international organizations in Ukraine; (b) a former or current senior official of the Government of Russia; (c) an associate or family member of a person described in paragraph (a) or (b); (d) an entity owned or controlled by, or acting on behalf of, a person described in paragraph (a) or (b); or (e) a senior official of an entity described in paragraph (d).”

Section 8 of the Canadian regulations provides the right of appeal, due process, and the requirement that the government substantiate its case. “A designated person may apply in writing to the Minister to have their name removed from Schedule 1, 2 or 3. (2) On receipt of the application, the Minister must decide whether there are reasonable grounds to recommend to the Governor in Council that the applicant’s name be removed from Schedule 1, 2 or 3. (3) The Minister must make a decision on the application within 90 days after the day on which the application is received. (4) The Minister must give notice without delay to the applicant of the decision taken.”

According to international legal experts, a much weaker right of appeal is allowed across the border in the US. This requires an application to the US Treasury’s Office of Foreign Assets Control (OFAC). According to one specialist, “the evidence in support of OFAC’s decision is often unavailable to those who seek removal.” A review of US court challenges to sanctions indicates that the courts have sided with the government, rejecting most claims based on constitutional rights, due process, or evidence. A 2002 case in US federal court in Chicago dismissed all challenges to a sanctions order issued before the evidence to substantiate it was gathered.

Boscariol cannot disclose the substance of his filing to the foreign ministry on Expobank’s behalf, except to say that “over the past several months we made numerous and extensive submissions of argument and evidence seeking to convince the Canadian government that there were no ‘reasonable grounds’ to substantiate any link between the bank and Russian president Putin or his close associates or that the bank was involved in any activities relating to ‘a violation or attempted violation of the sovereignty or territorial integrity of Ukraine or that obstruct the work of international organizations in Ukraine.’” And the government ultimately agreed and removed Expobank from the list.”

The Canadian sanctions against Russia have been introduced by the Conservative Party government, as voter support for Prime Minister Stephen Harper has collapsed. In August disapproval of Harper was running at 65%. With a national election due in a year’s time, voters are now threatening Harper and his party with a wipeout.

Baird’s domestic critics accuse him of using his foreign policy stances to attract publicity and gain higher voter ratings than his prime minister.

In Canada there has been only one court case in which a sanctions listing has been challenged. In 2009 a dual Canadian-Sudanese citizen, Abousfian Abdelrazik (right), sued the Foreign Ministry in federal court in Ottawa after he had been hit with a sanction denying him renewal of his Canadian passport and the right to reenter Canada. The full judgement in the case can be read here.

The Canadian foreign ministry had alleged that its sanction was warranted because Abdelrazik had been associated with Al-Qaeda. The court ruled that although he had an association with “two individuals involved in terrorism”, mere association was insufficient to warrant the sanction. According to the judgement, “there was no evidence in the record on which one could reasonably conclude that the applicant had any connection to terrorism or terrorists, other than his association with these two individuals.” The evidence rejected by the court originated with US intelligence agencies.

In his judgement, Justice Russel Zinn (right) ruled that it had been “open to the applicant to challenge the Minister’s decision on the basis that it breached the rules of natural justice and procedural fairness”, but since he had not opted to do so, the resort to court was also open to him. That, wrote the judge, required submission of evidence in support of Abdelrazik’s claim that the government’s action lacked reasonable grounds.

The court also ruled that the foreign ministry and government “have connived to keep the Applicant in de facto exile in Sudan through a combination of actions undertaken negligently or in bad faith.” The acid test for government accountability, the court declared, was whether the sanction was “a reasonable limit prescribed by law that can be demonstrably justified in a free and democratic society.”

This is the test of proof which the UK and EU courts have already found to be missing in the application of sanctions against Iranian banks. The recent judgements in those cases, including one issued in Luxembourg last week, can be read here. In Canada, trade losses caused by the sanctions issued by Ottawa, and the counter-sanctions which followed from Moscow in August, are estimated to run above several hundred million dollars in the meat trade alone. In the first quarter of this year, before sanctions commenced, Canadian exports to Russia amounted to $427.6 million, according to Russian Customs. This represented growth of 20% over the same period of 2013.

Much more value is at risk from sanctions in the flow of direct investments between Canada and Russia. Direct Canadian investment in Russia is currently estimated at about $1.5 billion; the counterpart Russian investment in Canada is almost $900 million. The former includes goldmining by Kinross, which is planning another $1.3 billion for a new mine. The latter includes the control stake in Uranium One owned by the Russian state company, ARMZ. Investment in Canada has also been proposed by Rosneft, Gazprom, Rusal, and Severstal.

Legal experts note that among the NATO member states and allies of the US, who have imposed sanctions on Russia, Canada is unique in allowing an initial appeal to the government against the sanctions; and if that is unsuccessful, a challenge may follow in court. The sources say they know of no challenge comparable to the RosEnergoBank and Expobank case anywhere in the world. They add that following Boscariol’s success, they expect to see other Russian corporations and individuals follow suit.